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State of the economy probability RA RB Boom 0.30 16 40 Normal 0.50 11 10 Recession 0.20 6 -20 a) Expected return b) variance c)

State of the economy probability RA RB

Boom 0.30 16 40

Normal 0.50 11 10

Recession 0.20 6 -20

a) Expected return

b) variance

c) standard deviation

d) Which asset would you choose?

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